In order to attract today’s eco-conscious consumer, environmental, social and governance (ESG) initiatives are becoming increasingly important to public companies—but uncertainty around how to report ESG activities underscores a clear need for better regulatory guidance, according to new research from corporate compliance management solutions firm Intelligize.
According to firm’s new study, The Conscience of Corporations: Public Company ESG Adoption, three-quarters of recently surveyed public company representatives have a desire to create positive ESG outcomes. Those desires, however, are tempered by a lack of knowledge about important ESG issues, including how costs affect their companies’ commitments, whether ESG-related information should appear in their financial reports, and whether their ESG reporting is even accurate.
The report reflects the findings of the firm’s recent survey of C-suite executives and compliance, investor relations, accounting, and legal professionals on the ESG activities of a broad spectrum of public companies.
“A recurring theme we found in our survey responses was a lack of clarity surrounding the ESG reporting process and questions about whether ESG reporting presents an accurate picture of companies’ core values,” said Rob Peters, a report coauthor and a senior director at Intelligize, in a news release. “Companies overwhelmingly seek direction on ESG disclosure practices, and it will be interesting to see if and when the Securities and Exchange Commission will provide it.”
Key takeaways from the study include:
Commitment to ESG
Seventy-five percent of survey respondents indicated their companies are undertaking ESG initiatives primarily based on a desire to create positive outcomes. But further data reflected uncertainty about the depth of that commitment, including how financial costs affect the level of ESG investment and the lack of tie-in at many companies between executive compensation and ESG incentives or metrics.
ESG reporting process
The lack of a regulatory framework for ESG disclosure was illustrated in responses about the format companies use to report ESG outcomes. A plurality of respondents (nearly 42 percent) indicated that their companies’ financial reports should include ESG disclosure; at the same time, a sizable percentage of respondents remained undecided on that issue. In the absence of clear mandates, a majority of respondents reported taking cues from peer companies’ disclosure and from ESG frameworks outlined by nongovernmental organizations.
ESG reporting substance
Slightly more than a majority of respondents indicated that ESG reporting should appear in proxy materials over 10-K filings—a possible reflection of investors’ intense interest in ESG issues. More than 60 percent of respondents think their companies’ ESG reporting is at least somewhat informative. But fewer than half (49 percent) of respondents believe the ESG reporting accurately reflects their companies’ values, and 35 percent are unsure.